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Velocity and the variability of money growth: evidence from Granger- causality tests reevaluated

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  • Yash P. Mehra

Abstract

Hall and Nobel (1987) use the Granger-causality test to show that volatility influences velocity, leading them to conclude that the recent decline in the velocity of Ml is due to increased volatility of money growth which is alleged to be caused by the Federal Reserve's new operating procedures. This note shows that such a conclusion is unwarranted, because the causality result reported in their paper is not robust. When the test is implemented either using first differences of the volatility variable or using the volatility and velocity variables that are based on the broad definition of money or over the sample period that includes the 1985-86 episode of the decline in the velocity of Ml, then the test results do not support the inference that volatility influences velocity.

Suggested Citation

  • Yash P. Mehra, 1987. "Velocity and the variability of money growth: evidence from Granger- causality tests reevaluated," Working Paper 87-02, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:87-02
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    References listed on IDEAS

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    Keywords

    Velocity of money; Money supply;

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